Date: August 31, 2020

Bulls Refuse to Give Up Ground

As you know, I have written many pieces lately about my concerns around the NASDAQ 100 and Fab Five plus a few stocks. Between “everyone” loving those few stocks and the indices hitting new highs with more stocks declining than advancing and overall sentiment on the giddy side, there has been no shortage of cracks in the market’s foundation.

Yet what has happened?

The bulls have run right over the bears each and every time. The NASDAQ hasn’t had even a mild pullback since early August. Remember two things that I keep repeating. Price is the final arbiter which means that in the end price is what matters most and markets can stay irrational longer than anyone can stay solvent fighting that. In other words, right now the market doesn’t give a hoop about all the warning signs its giving off. Sooner or later they will matter and when they do, it will be in a big way. This kind of action has never ended well in my 32 year  career.

Anyway, taking stock of the major indices, we now have the S&P 500 at all-time highs to join the NASDAQ 100. While I was definitely bullish in late March, I would have bet heavily against fresh all-time highs before Labor Day. In fact, I did do just that with a buddy of mine for all you can eat Sally’s Pizza. The Dow Industrials are less than 1000 points from new highs and given the outright manipulation going on today, I have little doubt the venerable index will get there. The S&P 400 and Russell 2000 still have a ways to go before new highs are hit and I do not get the sense that fresh highs are coming soon, but this market has confounded the masses time and time again.

On the sector front, two of my four key sectors are at new highs. Those being semis and consumer discretionary. Transports are close, much to the dismay of the masses who continue to bet against the transports. Only the banks remain mired and that cannot be ignored. Yes, ultra-low interest rates hamper their ability to grow profits, but there is more to it, like the potential loan defaults over the coming 6 months.

As August closes the bulls remain in control. Upside momentum is super strong, for now. The number one thing on my list to watch this week is volatility as we just started seeing the Volatility Index (VIX) move higher with higher prices. That is unusual and a sign that things are about to heat up, perhaps in both directions after the recent 7 day surge.


Paul Schatz, President, Heritage Capital